Azure Likely to Get Compensated for Increase in Solar Project Cost Due to Levy of Safeguard Duty

Azure had invoked the ‘Change in Law’ clause to request compensation for its projects after the introduction of safeguard duty last year


The Maharashtra Electricity Regulatory Commission (MERC) has provided relief to Azure Power in two cases in which it had requested the commission to consider the levy of safeguard duty as Change in Law and had asked it compensate the company for the increase in project cost following the imposition.

The company had filed two separate petitions. In the first, Azure had requested the MERC to direct Maharashtra State Power Generation Co. Ltd (MSPGCL) and Maharashtra State Electricity Distribution Co. Ltd (MSEDCL) to consider the levy of safeguard duty as Change in Law.

Azure was selected to develop 150 MW of solar PV projects by Maharashtra State Power Generation Co. Ltd (MSPGCL) for the tender floated by it under Mukhyamantri Sour Krishi Vaahini Yojana. Under this state program, MSPGCL was to set up solar PV projects through competitive bidding route for the supply to Maharashtra State Electricity Distribution Co. Ltd (MSEDCL).

MSPGCL had floated the tenders for Phase- II (300 MW) and Phase – III (A) (50 MW). Under the tenders for Phase – II, Azure was selected as the lowest bidder for four tenders of 50 MW in each block of Vidarbha-A & B, Marathwada and western Maharashtra-B.

Azure Power had filed this petition in February 2019, requesting approval and to fix the compensation on account of ‘Change in Law’ due to the announcement of safeguard duty.

The imposition of duty implied that the company would have to bear the additional costs for procuring the solar panels and modules from a foreign manufacturer in China.

In its order, the commission noted that all the parties to the petition including Azure have admitted that subsequent to the adoption of tariff by the commission in its order dated 29 November 2018, the final PPA is yet to be signed. Claims related to ‘Change in Law’ need to be decided based on the provisions of PPA signed between the parties. “It would be premature to adjudicate this matter based on the provisions of draft PPA, in absence of a legally binding PPA between the parties, present petition is premature for adjudication” reads the commission order.

Under the provisions of PPAs, an event arising from the actions of an authority covered within the definition of ‘Indian Governmental Instrumentality’ would satisfy the requirement of Change in Law. ‘Indian Government Instrumentality’ as defined under the PPA includes any Ministry of the Government of India. The Ministry of Finance is a ministry under the Government of India is satisfying the requirement of ‘an Indian Government Instrumentality’ under the PPA, noted the MERC order.

Further, the commission also ruled that the additional expenditure and other consequential impacts would be considered on an actual basis for reimbursement under Change in Law subject to prudent check. Accordingly, power producers should approach the commission later to determine the increase in cost and revenue expenditure on account of imposition of safeguard duty, if any, and the mode of recovery.

The MERC also heard another petition filed by Azure Power Thirty Four Private Limited (in February 2019)  against MSEDCL for the approval and determination of compensation on account of Change in Law for its solar project. For this case, the commission has partly allowed the petition, with instructions to file the petition with all the details in accordance with the provisions of the PPA.

Earlier, Mercom had reported about Azure Power getting temporary relief in a similar petition from the Gujrat High Court regarding solar safeguard duty.

Soumik is a staff reporter at Mercom India. Prior to joining Mercom, Soumik was a correspondent for UNI, New Delhi covering the Northeast region for seven years. He has also worked as an Asia Correspondent for Washington DC-based Hundred Reporters. He has contributed as a freelancer to several national and international digital publications with a focus on data-based investigative stories on environmental corruption, hydro power projects, energy transition and the circular economy. Soumik is an Economics graduate from Scottish Church College, Calcutta University.